Japan: BP All Over Again?

By Brad Thomason, CPA

 

Sunday night I sent a text to my friend Steve Sjuggerud (Steve writes Stansberry Research’s newsletter “True Wealth”).  It said, “Wonder if uranium stocks are gonna fall tomorrow because of Japan.  Could be BP all over again.”

Well, since then NLR, a basket of uranium related stocks (mining and energy production) is down about 16%, and URA, the ETF for uranium mining only, is down 30%.

My personal belief is that the news is responsible for far less stock market movement then it gets credited/blamed for.  But that doesn’t mean that the news can’t move the market.  Sometimes it moves it in a big way.  We saw it with the BP disaster last year, and we are seeing it right now with the horrible situation they are having in Japan.  When bad things happen, really bad things, investors run for the doors.  Running for the doors invokes plain old-fashioned Supply and Demand, and prices fall.

If I were a member of the nuclear lobby I would be looking for a new job right now.  The prospect of any new US nuclear power plants getting the go-ahead just took a significant downward ratchet.  This is exactly the sort of nightmare scenario that people fear when they hear the word “nuclear,” and it just became permanently harder for any would-be plant builders to gloss over the potential risk.

But that doesn’t mean we’ve hit the end of nuclear power.  Nuclear power plants are extremely expensive to build, and it is highly unlikely that all of the world’s nuclear plants are now going to be switched to the ‘off’ position “just in case.”

The plants that are operational will likely keep running.  And making money.  And needing uranium.

So while the future story of uranium may have been changed, the current trajectory likely hasn’t.  As a result, regardless of what is going on with the perception about uranium stocks, reality probably doesn’t support declines of the type we’ve seen so far, declines which could continue as long as this awful tragedy is in the news 24/7.

Once the news pressure abates, a price climb back to more sensible levels could be in store…just like it was for the stocks involved with the BP spill.

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